Wednesday, December 14, 2011

Czechs join the Jet set

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Last month the Czech Republic's first open-access long-distance passenger operator extended its services into neighbouring Slovakia, and has ambitions to expand even further. Aleš Ondruj, director, onboard services, for RegioJet tells Keith Barrow how liberalisation of the sector is bringing innovation and greater choice for passengers.

FOR even the most casual observers of the Czech railway scene, the arrival of the country's first open-access long-distance passenger operator has been impossible to miss. Since September, the bright yellow trains of RegioJet have become a familiar sight on the Prague - Olomouc - Ostrava corridor, a vivid reminder that Czech Railways (CD) now faces competition on its most lucrative inter-city route.

On September 26, RegioJet launched its initial service of three return trains per day, increasing to four trains per day in November. With the timetable change on December 11 services were stepped up to five trains per day and extended beyond Ostrava to serve Havirov. One of these trains runs to Zilina in Slovakia, making RegioJet the first international open-access passenger operator in central Europe.

RegioJet is a subsidiary of Student Agency, a major Czech travel company which operates long-distance bus services on domestic and international routes, carrying around five million passengers per year. Five years ago Student Agency began to investigate the possibility of entering the rail market, which at that time remained a state monopoly in the Czech Republic.

The Czech government planned to tender regional train services, adopting a variation of the model that had been successfully applied in neighbouring Germany. Student Agency formed RegioJet in 2009 to bid for these contracts, but in 2010 the government decided to award all the contracts to CD without tendering, despite protests from competitors who claimed the decision breached European law.

With no immediate opportunities in the Czech regional sector, Student Agency decided to focus instead on the long-distance market, acquiring nine electric locomotives and 40 coaches for the launch of its Prague - Ostrava service.

RegioJet offers a journey time of 3h 30min, comparable with competing locomotive-hauled trains but around 30 minutes slower than CD's flagship Pendolino. However RegioJet differentiates its product on other selling points. Seat reservations are included in the fare, wireless internet access is free-of-charge to all passengers, and there is a steward or stewardess in each coach. There are complimentary drinks and newspapers on board, and an easy-to-navigate booking system which is linked to other Student Agency services.

"We do not vary the level of service according to the price of the ticket - the standards are consistent for every one of our passengers, and we aim to deliver an extensive package," explains Mr Aleš Ondruj, RegioJet director, onboard services. "The fares system is simple, attractive and easy to calculate. People and company values are also important. We put a lot of emphasis on the friendliness of staff, and this is another important area that makes a big difference. We are out to show that customer service is important."

The success of this service concept might be judged on ticket sales. More than 100,000 passengers travelled with RegioJet in its first two months, and in a time of economic hardship, Ondruj believes these figures suggest the company's business concept is sound. RegioJet also says it is achieving some of the best inter-city seat occupancy rates in Europe on the Prague - Ostrava line. Average load factors on these trains have exceeded 80-90%, and reached 96.3% in mid-November.

Later this year CD and RegioJet will be joined by a third operator on the Prague - Ostrava line. Like RegioJet, Leo Express will aim to offer a standardised level of service, but will offer three types of accommodation on its trains: premium, business, and economy class. The company, which is owned by entrepreneur Mr Leoš Novotny, will operate a fleet of five five-car Stadler Flirt emus ordered through Novotny's Leopool train leasing company. The first of these trains is currently in production, and is due to appear at InnoTrans in Berlin in September.

Seemingly unfazed by the prospect of another new entrant, Ondruj believes the Prague - Ostrava market is unlikely to support three players in the longer-term. "I can imagine a situation where only two companies will compete, and I believe CD will step out of this market to concentrate on other areas," he says. "I don't believe CD will make a profit on this line and it has the potential to be a big loss-maker for them. They need to rethink their strategy in a changing market, in the same way the arrival of budget airlines forced national carriers to take a different view."

Ondruj suggests that as the incumbent operator CD must re-evaluate its role as liberalisation changes the long-distance landscape. "The CEO of CD has publicly declared that the need to focus resources on one route where there is competition can damage service quality elsewhere," he says. "If this is the case, we should question the role of CD. Is it to over-service one line with no evidence that this strategy will generate a profit, or is it to provide citizens with a consistent level of service over the whole country? The regions and the state pay a lot of money to CD for the services it provides, so they should think about what they want CD to focus on."

Whether on-rail competition will actually increase rail's market share on the Prague - Ostrava route is open to conjecture. Ondruj suggests the line has been targeted by open-access operators because rail is already dominant and newcomers see opportunities to take passengers from CD. But on other lines, the situation is quite different. Rail's market share between Prague and Brno, the Czech Republic's second-largest city, is comparatively low with road being the preferred option of many travellers. Indeed, this is one of Student Agency's busiest coach routes and the company sees significant potential for expanding rail's market share. RegioJet is therefore planning to launch its first Prague - Brno services in December. "It's clear to us that the availability of a better quality rail service would bring a huge shift to rail," says Ondruj, confirming that RegioJet is currently in the process of procuring additional locomotives and coaches for this route.

Meanwhile CD is looking to improve Prague - Brno services with the introduction of new trains. On September 30, CD announced it would take over an option from a contract originally signed by Austrian Federal Railways for 16 230km/h Railjet trains from Siemens. These seven-car push-pull sets will enter service by 2014, with power provided by new Škoda class 380 electric locomotives. This €200m investment will also allow CD to improve the quality of international services, with the benefit of trains that are already approved for use in neighbouring countries.

Ondruj argues that high prices and poor connections have suppressed demand for cross-border rail services. RegioJet sees huge potential for attracting international passengers back to rail and as a subsidiary of a major international travel company, it already has a head start in this market. Student Agency is currently the largest agent for German Rail (DB) tickets in the Czech Republic, and the two companies are cooperating on Prague - Munich bus services. DB is negotiating with both CD and RegioJet over the future operation of Prague - Berlin - Hamburg services, and Ondruj says it will select a Czech partner soon for this route.

In addition to its open-access long-distance ambitions, RegioJet is still pursuing subsidised regional concessions outside the Czech Republic. In March it will become the first operator to break Slovak State Railways' (ZSSK) monopoly on the regional market when it takes over Bratislava - Komárno services under a nine-year concession. RegioJet has leased a fleet of nine Bombardier Talent dmus for this line.

Reassuringly, RegioJet shares many of the characteristics that define other pioneers in the open-access long-distance sector, such as NTV in Italy and Westbahn in Austria. It is backed by an experienced public transport operator with the financial resources to support a fledgling venture in a potentially aggressive marketplace.

All three are challenging incumbents on their most profitable routes, forcing them to look at their products in a new light, and adapt their service levels and prices to the market. This shift should empower passengers and make rail a more attractive option for inter-city journeys.

But it also poses key questions for incumbent operators. How much of their resources should they invest in protecting market share on key routes? If revenue declines on the highest-margin services, what will the broader impact be on the company and the national network? Should they be allowed to invest in foreign open-access operators to compensate for depleted revenues at home? What is certain is that both new and incumbent operators will need to innovate if they are to thrive in the liberalised environment that is now emerging.

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